2012-06-28 11:07:34New Policy Paper: The End of Stimulus Policy. Today, a new policy paper by me is published, by American Enterprise Institute in Washington DC. Using new empirical evidence and well-established research, I make the case against traditional Keynesian stimulus policy and, in a way, defend so-called austerity. All this in an accessible format. Abstract:

The financial crisis and recession of 2008-2009 were countered in many countries with Keynesian-inspired stimulus policies with, among other measures, large increases in public spending. Along with falling tax revenues, a sizeable increase in public spending has produced a serious debt crisis, which has in turn led to lower economic growth and higher unemployment rates. Some explanations for the failure of Keynesian policy include the so-called crowding out effect, unproductive and inefficient government decisions, poor timing, and growing public deficits and debt. By contrast, countries that have cut public expenditure, upheld fiscal policy frameworks for balanced budgets, emphasized tax cuts, and reformed the economy for competitiveness have fared better. This paper explores the crisis-response policies of major developed economies and argues that stimulative policy has intensified the financial crisis, not solved it.